What is Ijarah?
Ijarah is an Arabic word that means “to give something on rent”.

Under the concept of Ijarah in Islamic banking, a customer can use an asset or equipment, which is owned by an Islamic bank, for a fixed period against a fixed price. Al Ijara is very similar to a leasing contract, and the asset under the Ijarah contract could be a car, home, plant, or a machinery.  Financing Concept: Transferring the usufruct of an asset but not its ownership.

  • Bank transfers the usufruct to the client for an agreed period at an agreed consideration (rentals)
  • The asset under Ijarah should be non-perishable, non-consumable
  • Asset which do not maintain their corpus during their use cannot become the subject matter of Ijarah, for instance money, commodities etc
  • Types of Ijarah financing:
  • Operating Ijarah: standard Ijarah (leasing) agreement
  • Ijarah thumma al bai: lease and buyback agreement
  • Ijarah-Wal-Iqtina: lease and unilateral undertaking to transfer ownership
Man signing contract
Shariah compliance
Ab islamicbanking ijarah rentalobject

The rental object (the use of the rental property) must be known and accepted by both parties.
Ab islamicbanking ijarah nondestructible

The rental must relate to non-destructible goods due to enjoyment or use.
Ab islamicbanking ijarah contract

The rental period, the payment period, the amount of the rent and the frequency must be determined and known at the conclusion of the Ijarah contract.

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